Millions In Tax Credits For Low Incomer Earners Left On The Table

The tax filing deadline next month is a source of stress for some, but for low income earners this is potentially a season for celebration. However, a Federal tax credit designed to rescue families from poverty leaves millions of tax dollars sitting unclaimed on the table.

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Millions In Tax Credits For Low Incomer Earners Left On The Table

One of the most important federal programs to save people from falling into poverty leaves millions of tax credits on the table unclaimed.

It’s a weekday morning and there’s an air of quiet concentration in this community center in Vista. No one here earns much, but they’re all dutifully filing their taxes.

In a small side room filled with computers, a volunteer tax preparer is finishing up a tax return.

“You’re going to get money back here. … more than a little,“ she tells Luisa Cuellar, a mother of four who has come in with her husband, Arturo.

Luisa is not one to procrastinate on filing her taxes.

“We cant wait,“ she said. “We can’t wait for tax season because we’re going to have some relief coming.”

The Cuellars earn about $35,000 a year between them. They’ve just learned they qualify for more than $8,000 in child and earned income tax credits. Luisa Cuellar knows just what they’re going to do with it.

“First we pay off everybody we’ve borrowed money from,“ she said, “and then we pay bills off. Then, if anything’s left over, we do something special with the kids.”

Cuellar is clear that without the tax credit, staying afloat financially would be almost impossible.

“We would be in debt for the rest of our lives,” she said. “We’d be in debt every year and we’d have to have maxed out credit cards and probably eventually file bankruptcy. “

Samantha Betanzos is the Family Self-Sufficiency Program Supervisor at North County Lifeline, which runs this free tax preparation program.

Above: Samantha Betanzos, Family Self Sufficiency Program Supervisor, North County Lifeline.

“A lot of low income families, this is how they pay their rent for the rest of the year,“ she said. “I’ve definitely known of families we’ve been working with that have been able to go out and get their own apartment and move out of shelters.”

Betanzos explained the money doesn’t just benefit the individual who files. Last year this program generated $1.7 million in earned income tax credits for 900 North County residents, who then spent that money in the community.

One of the volunteer tax preparers is Tony Perez, an accounting student at Cal State San Marcos. He finds the work personally very satisfying.

“It’s memorable.“ he said. “Last week I had a lady come in - she was expecting to pay taxes but when I broke down her return, I explained to her she was going to get a refund including that she qualified for the earned income tax credit. And not just a small amount -- it was going to really help her family. She was pleased and grateful.”

One caveat, the IRS recently warned of a scam where low earners are lured into filing for bogus credits. Red flags are tax preparers who promise refunds with no documentation required, charge exorbitant upfront fees or want to split the refund when it comes.

The Volunteer Income Tax Assistance or VITA program used by North County Lifeline offers free tax preparation and requires documented proof of earnings.

The earned income tax credit is one of the most important programs to help keep families from falling into poverty, but about 20 percent of the people who qualify don’t claim it. In fact, it’s estimated that in San Diego about $70 million goes unclaimed.

Betanzos said she doesn’t think people quite understand the benefit.

“This is not money that people have paid to the IRS, “ she said, “this is money that the IRS is giving clients or taxpayers for working and having a very low wage.“

For example, a family with three children where the parents have an annual income under $49,078 can get a maximum earned income tax credit of $5,751.

Statewide it’s estimated more than one billion dollars of earned income tax credits that could have been returned to low income earners went unclaimed.

But people on the edge of poverty are likely to claim the tax credit if they know about it. Compare that with Food Stamps, where only about a third of the people in San Diego who qualify actually get them.

Tony Perez said there is a reason why some families that qualify for food stamps don’t apply for them.

“For food stamps,” he said, “you have to go through an extended process of application and there’s a stigma behind it as well. When you’re at the counter, you’re paying food stamps and sometimes people will get embarrassed by that. But no one knows if you get the earned income tax credit or not. It’s included in your tax return.

It’s also the way it’s marketed, Betanzos said.

“The earned income tax credit is marketed that it’s for families that work hard but just aren’t making it, whereas Food Stamps is seen as more of a handout, a welfare program.”

A poster on the wall advertises in big letters, “ Get Cash at tax time – you’ve earned it!”

I asked Luisa Cuellar why she thought so many people don’t apply for the tax credit.

“They’re crazy!” she answered. “I don’t know why they don’t do that. It’s a lot of money they are just throwing away. And you don’t get it back. I mean, the IRS will hunt you for years for their money, but if you don’t file, you don’t get it back. “

A 2010 report by the New America Foundation estimated the $1.2 billion in Earned Income Tax Credits that went unclaimed in California could have generated 1.4 billion in sales and more than 8,000 jobs.

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